We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

Advertising in the digital age - the future role for competition law
BlogThe CLIP Board

The House of Lords Select Committee on Communications has published its final report following a wide-ranging investigation into the UK digital ad market. Its headline finding is that a lack of transparency hinders the ability of advertisers to ascertain whether they receive value for money for ads.

Of particular note for those who follow competition law is the Committee’s recommendation that the CMA conduct a market study into digital advertising to investigate whether the market is working fairly. The Government has also been encouraged to undertake a review of whether current competition law is adequate to regulate the 21st century digital economy, potentially as part of its work on the UK’s Digital Charter (see here).

Context for the review

At its origin, the House of Lords’ inquiry had something of a Brexit flavour, focussing on the competitiveness of the UK advertising industry in the global economy. The role of digital advertising was seen as signalling a potential need for the analogue industry to adapt to change. The high value of advertising in the UK economy was also noted.

What were the Committee’s findings?

The final report unsurprisingly notes the increasing role played by online advertising, the complexity of the business models involved and the increasing possibilities for individually targeted ads. Concerns are expressed that online advertising is not held to the same standards as print advertising, which may lead to a decline in trust and thus value. At the same time, the proportion of overall spend is rapidly switching to online ads.

Turning to the part of the report focussing on digital advertising, the Committee found that despite the proliferation of adtech models, the digital ad market in the UK is currently dominated by a small number of tech firms.

Acknowledging that dominance is not illegal in itself, the Committee nevertheless noted the evidence given by Prof. Barwise on the economic impacts of increased market concentration and network effects: “once you achieve a dominant market share in this kind of market, it is almost impossible to be displaced … The most you can hope for is that they get eclipsed by someone dominating a new market that becomes bigger,” and “Most of the new technology is being developed by startups and the big tech players. When a startup is looking successful, it tends to get bought by one of the big tech players.”

What are the prospects of regulatory intervention?

Investigations into digital markets by competition authorities is something of a global trend, and the French authorities in particular have already carried out a specific study on digital ad markets (here). The prevalence of these studies reflect wider political and public concerns about the perceived power and reach of some online players, as well as the concern to ensure the continuation of an open internet (the alternative to extensive advertising may be increasing use of paywalls).

The Committee specifically calls upon the CMA to undertake a market study into the online ad industry “to investigate whether the market is working fairly for businesses and consumers”.

However, it remains to be seen whether the CMA will pick up the Committee’s gauntlet. Michael Grenfell (Executive Director for Enforcement, CMA) told the Committee that “the CMA had already been asked to conduct a market study into online advertising but declined to do so because they had not found any detriment to consumers on preliminary consideration”.

Mr Grenfell appears to be referring to the CMA’s report on "The commercial use of consumer data", June 2015, which did not identify a specific competition issue in relation to online advertising and concluded that “we see no reason, at present, why our existing competition and markets tools would not be effective at tackling conduct that gave rise to competition concerns in these markets”.

The CMA also pointed to its limited resources. While it has received a cash boost since that date, the demands of Brexit may make such wide-ranging studies unlikely for now.

Nevertheless, the current Department of Business and Industry Strategy’s consultation on ‘modernising consumer markets’ (see here – the consultation is intended to review the effectiveness of the UK’s competition and consumer protection laws in digital markets) may lead to further intervention.

What next for digital advertising?

The Committee’s report illustrates that the digital ad market remains a focus of attention and concern. Despite the CMA’s stated position in the report, discussion of increased ex ante regulation, and ex post competition based investigations cannot be ruled out. But for all the focus on British competitiveness, and even though localisation of ads is important, many aspects of this debate transcend national boundaries. The British government and the CMA are not the only players who will define the evolution of online ad markets.